Australia’s $200 Billion Services Sector Vulnerable to Disruption by AI

At Acutech we’ve been researching how artificial intelligence (AI) is eating into the $200 billion income of the professional, scientific and technical services market, ultimately to the benefit of the users of these services; the customers and clients.

Much of this income is taken home by about 1 million employees and proprietors as salaries and profit distributions. They work across a range of occupations as architects, accountants, IT consultants, engineers, lawyers, management consultants, scientists and more. Many readers of this article will be working in one of these sectors and no doubt will have their own views on whether their unique skills can be replaced by AI or not.

The future is positive. More people having useful jobs. Greater diversity of people involved in delivering solutions. Clients playing a greater role in shaping the advice they truly need. All assisted by a vast array of technological tools, enablers and bots.

Machines that do the routine stuff so people can get on with the hard stuff that needs time, thought and a human touch.

Looking at our findings in the table above, drawn from the last census data, we can see 200 billion good reasons to sit up and take notice. Let’s put some faces on these numbers.

Customers and clients – who annually pay the ‘sales income’ totalling approximately $200 billion across all these sectors. These are the people who have a problem and decide where they should go to find an answer.

Experts who do the work – naturally they ‘take home’ a significant portion of what the client pays (across all the sectors, it’s over half).

In the table we can see that lawyers and accountants take home roughly 65% of the fee. This reflects the well proven professional services business model with roughly an even split of 1/3 for the staff, 1/3 for the practice expenses and the remaining1/3 as profits for the partners. The fee is collected through the hourly charge-out rate, traditionally used as a measure of effort, set at roughly 3 three times the expert’s salary to achieve the above split. This traditional model is all about the expert who is ‘charged out’ to the client, with little focus on ‘value to’ the client.

Enter the disruptors. New technologies and business models are beginning to eat into the seemingly endless glory years experienced by the top end professionals.

But it’s not just about reducing costs. Clients are simply demanding value. They want more convenience, online digital delivery, an ability to own and manipulate the advice and get answers to what they really need, not what their good-natured adviser perceives they need. AI can help a client ‘triage’ the problem so they can accurately scope what they need and (here’s the rub), if and how they use advisers.

Nor is it about computers replacing humans. New business models, enabling non-professional experts to solve discrete elements of the client’s problem, also deliver better outcomes and value. This is called disaggregation whereby experts do not need to deliver the whole solution at hourly charge out rates. Pieces of work can be performed by other experts or by machines, usually a combination of both.

This might seem to fly in the face of the ‘one stop shop’ or ‘trusted adviser’ benefits offered by professional firms. Quite the contrary. Under these new tech-driven business models, a well-structured problem-solver can clinically involve all the best inputs (whether from within, external, human or machine) to deliver a valuable solution, the best solution, to the answer what a fully informed client knows they need.

This is no different to the concept of delegation which has been the foundation of the leveraged model of the professions. Disaggregated leverage models bring a range of people, software and processes to bear to solve the client’s problem.

Experts can help more clients solve more problems by delegating and supervising a diverse team of people and machines.

An interesting benefit is the opportunity to help those who cannot access professional advice due to cost or a lack of access to knowledge. The ‘great unserviced’ are clearly winners, able to access high quality professional advice from AI startups under low cost ‘advice for all’ delivery models.

Getting back to the numbers, if emerging AI startups could service just 2% of the Australian market in the short term, that would deliver at least $4 billion worth of value to customers and clients.

Just think for a moment about what this means for the global services industry? Australia is the world’s 13th largest economy at 1.7% of global GDP. If we extrapolate our professional services sector income, this is equivalent to a global professional services sector income of $11,764,705,882,353 (which I think is $11.8 trillion!). 2% of this would be $235 billion. Now that’s value worth chasing!